TCR Training CPWG 041114

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Transmission
Congestion Rights –
Credit Perspective
April 17, 2014
Presentation Goals
 Provide a detailed flow of how credit
requirements are impacted by the TCR Market
 Come away with an understanding of how Credit
will be evaluated and assessed during the TCR
Auction and TCR Award Periods
2
Common Acronyms
• AO – Asset Owner
• ACP – Auction Clearing Price
• MCC – Marginal Congestion
Component
• ARR – Auction Revenue Right
• MP – Market Participant
• CH – Credit Holder
• OD – Operating Day
• CMS – Credit Management System
• RT – Real Time
• DA – Day Ahead
• ENS – Estimated Not Settled
(Represented as ETCRE in Tariff)
• ETCRE – Estimated TCR Exposure
• TCR – Transmission Congestion
Rights
3
Transmission Congestion Rights
A TCR serves as a financial hedge against congestion
costs
DA MCC
at Sink
location
DA MCC
at Source
Location
TCR MW
TCR
Hours
TCR
Value
4
Transmission Congestion Rights
TCR positions can be submitted in TCR Auctions by:
• Bid to buy TCR
• Offer to sell existing TCR
• Self-convert ARRs
• Bids, Offers, and ARRs
make up a TCR Portfolio
during an auction period
Bids
Offers
ARRs
TCR Portfolio
5
Sign Conventions
•
A negative TCR Hold means SPP estimates that the
potential value of the TCR will result in a liability to
the Credit Customer
•
A positive TCR Hold means SPP estimates that the
potential value of the TCR will result in a asset to
the Credit Customer
•
A positive invoice total will result in a payment by
the Credit Customer
•
A negative invoice total will result in a payment to
the Credit Customer
6
TCR Reference Prices
TCR Reference Prices are a two-tiered statistical estimate :
• TCR Mean Price: Weighted average of what a given TCR
might have been worth in an historical reference period
• TCR Stress Test Price: Weighted percentile value based on
adverse market price congestion differentials in a historical
reference period
TCR Mean
Price
Max (0, TCR Stress Test Price)
TCR Final
Reference
Price
7
TCR Reference Prices
TCR Reference Prices are used in:
•
Assessment of TCR Bids and Offers in the various
TCR Auctions
•
TCR valuation during the TCR Hold period
•
Determining credit requirements for Secondary
Market Transactions
A Final Reference Price will be calculated for each
source/sink combination for each TCR Product and
posted publicly for MP reference
8
TCR Netting
During TCR Auction period:
•
Exposure for each TCR is evaluated individually
•
There is NO netting between positively and
negatively valued Bids and Offers.
•
Netting will take place between ARR’s
During TCR Award period:
•
SPP DOES permit netting of positively and
negatively valued TCRs
Per FERC Order 741: TCR positions are not netted with
other trading groups (Virtuals, DA/RT, etc.)
9
ARR Netting
During TCR Auction period:
•
ARRs will net on a weighted basis. 90% value for
positive (positive Reference Prices) ARR’s bid into the
Auction. 100% value for negative (negative Reference
Prices) ARR’s bid into the Auction.
•
Example: Portfolio of 2 ARR’s bid into the Auction.
ARR Value
Weight
Weighted Value used for
Credit Check
ARR1
$(90)
100%
$(90)
ARR2
$100
90%
$90
Collateral Requirement
$0
10
TCR Lifecycle
TCR Bids,
Offers and SelfConverted
ARRs Received
in TCR Auction
TCR Awards
Published
TCR Settled on
Day-Ahead
Market Results
TCR Bid ENS,
TCR Offer ENS
TCR ARR ENS,
and TCR Batch
ENS
TCR Forecast
Award
(Acquisition;
Disposal and Hold)
TCR Award
Exposure Roll Off
Marketplace
Invoices Sent
TCR Invoiced
11
TCR Pre-Conditions
•
CH ABC Energy has $100,000 in secured credit
•
Their AO, ABC Energy 1, is participating in the TCR
Auction and has been awarded a TCR in a previous
auction
12
Section 1
TCR AUCTION
13
TCR – Auction Period
•
The CMS receives a Batch of TCR Bids/Offers/ARRs
from the TCR system
•
CMS then determines that all Bids and ARRs contained
in the Batch have available TCR Product Final
Reference Prices and all Offers have either a TCR
Hourly Final Reference Price or a TCR Product Final
Reference Price
14
TCR – Auction Period
•
TCR Reference Price calculations:
TCR Product
Final Reference
Price
TCR Hourly
Final Reference
Price
TCR Hourly
Final Reference
Price
Mean Price
•
TCR Hours
Max (0, TCR Stress Test Price)
We will look at two examples of TCR Hourly Final
Reference Price calculations
15
TCR – Auction Period
•
Example #1
TCR Hourly Final
Reference Price
– Normal Flow
Mean Price Calculation:
Mean Price
75%
MeanY-1
Sink MCC
Source MCC
25%
MeanY-2
Sink MCC
Source MCC
Calculation of Mean Price
Mean Price
• 75% * ($6.00 - $2.00) + 25% * ($7.00 - $4.00)
• 75% * $4.00 + 25% * $3.00
• $3.00 + $.75 = $3.75
16
TCR – Auction Period
•
Stress Test Price calculation:
Stress Test
Price
Since the Mean
Price is positive,
the Stress Test
price is stressed
at the 75th
percentile
Example #1
TCR Hourly Final
Reference Price
– Normal Flow
75%
75th
PercentileY-1
Source MCC
Sink MCC
25%
75th
MeanY-2
PercentileY-2
Source MCC
Sink MCC
Calculation of Stress Test Price
• 75% * ($3.00 - $1.00) + 25% * ($4.00 - $2.00)
• 75% * $2.00 + 25% * $2.00
• $1.50 + $.50 = $2.00
17
TCR – Auction Period
•
Then we calculate the TCR Hourly Final Reference price
using the Mean and Stress Test price
TCR Hourly Final
Reference Price
$1.75
Mean Price
$3.75
Stress Test Price
$2.00
TCR Product Final
Reference Price
$1,386
TCR Hourly Final
Reference Price
$1.75
TCR Hours
792
18
TCR – Auction Period
•
Example #2
TCR Hourly Final
Reference Price
– Counter Flow
Mean Price Calculation:
Mean Price
75%
MeanY-1
Sink MCC
Source MCC
25%
MeanY-2
Sink MCC
Source MCC
Calculation of Mean Price
Mean Price
• 75% * ($4.00 - $8.00) + 25% * ($2.00 - $4.00)
• 75% * $-4.00 + 25% * $-2.00
• $-3.00 + $-.50 = $ (3.50)
19
TCR – Auction Period
•
Next we calculate the Stress Test Price:
Stress Test
Price
Since the Mean
Price is negative,
the Stress Test
price is stressed at
the 90th
percentile
Example #2
TCR Hourly Final
Reference Price
– Counter Flow
75%
90th
PercentileY-1
Source MCC
Sink MCC
25%
90th
MeanY-2
PercentileY-2
Source MCC
Sink MCC
Calculation of Stress Test Price
• 75% * ($2.00 - $1.00) + 25% * ($3.00 - $2.00)
• 75% * $1.00 + 25% * $1.00
• $.75 + $.25 = $1.00
20
TCR – Auction Period
•
Then we calculate the TCR Hourly Final Reference price
using the Mean and Stress Test price
TCR Hourly Final
Reference Price
$ (4.50)
Mean Price
$-3.50
Stress Test Price
$1.00
TCR Product Final
Reference Price
$ (3,024)
TCR Hourly Final
Reference Price
$ (4.50)
TCR Hours
672
21
TCR – Auction Period
•
TCR Bids and Offers impact on Credit
TCR Bids:
• CMS evaluates whether
you have enough credit to
buy the TCR and Hold it
• A TCR Bid curve is defined
by at least two and up to
eleven TCR Point
Numbers and CMS
creates one or more
segments based on the
TCR Point Numbers
TCR Offers:
• CMS evaluates whether
you have enough credit to
sell the TCR (in the event of
a loss on the sale) and
remove the Hold from the
Portfolio (if it is an asset)
• A TCR Offer curve is
defined by at least two and
up to eleven TCR point
Numbers and CMS creates
one or more segments
based on the TCR Point
numbers
22
TCR – Auction Period
•
Next CMS will determine the Liability Maximizing
quantity for each Bid Segment
•
ABC Energy 1 submits a Bid for a 2015 Spring, On-Peak
TCR consisting of 4 segments (Bid ID 1)
Up to MW
Bid Price
TCR Hours
Segment Cost
TCR Product
Final
Reference
Price
Segment Hold
TCR Bid ENS
5
$5
672
$ (25)
$ (3,024)
$ (15,120)
$ (15,145)
12
$4
672
$ (48)
$ (3,024)
$ (36,288)
$ (36,336)
20
$3
672
$ (60)
$ (3,024)
$ (60,480)
$ (60,540)
25
$2
672
$ (50)
$ (3,024)
$ (75,600)
$ (75,650)
23
TCR – Auction Period
•
Next CMS will determine the Liability Maximizing
quantity for each Offer Segment
•
ABC Energy 1 submits an Offer of a 2015 Spring, OnPeak TCR consisting of 4 segments. (Bid ID 2)
Up to MW
Offer
Price
TCR Hours
Segment
Offer Loss
TCR Product
Final
Reference
Price
Segment Asset
Loss
TCR Offer ENS
5
$ (10)
672
$0
$ (3,024)
$0
$0
7
$ (9)
672
$ (50)
$ (3,024)
$0
$ (50)
9
$ (8)
672
$ (63)
$ (3,024)
$0
$ (63)
11
$ (7)
672
$ (72)
$ (3,024)
$0
$ (72)
24
TCR – Auction Period
•
Lets look at how Segment Offer Loss is calculated
–
First, we must calculate the Slope of the Offer Curve for
Segment 2
Slope
0.5
(TCR Offer PriceSegment2 – TCR Offer PriceSegment2-1)
$ (9) – $ (10)
(TCR Offer MWSegment2 – TCR Offer MWSegment2-1)
7-5
25
TCR – Auction Period
•
Then we must calculate the Intercept for Segment 2
Intercept
(12.50)
•
Offer PriceSegment2
$ (9)
Slope * TCR Offer MWSegment2
0.5 * 7 = 3.5
We use these to determine the TCR Offer Maximum
Loss MW
TCR Offer Loss MW
(12.50)
Intercept
(12.50)
2* Slope
2* 0.5
26
TCR – Auction
•
TCR Offer Maximum Loss MW
IF
TCR Offer Loss MW
(12.50)
THEN
TCR Offer Loss MW
5
<
TCR Offer MWSegment2-1
5
TCR Offer MWSegment2-1
5
27
TCR – Auction Period
•
Then we must calculate the TCR Maximum Offer Cost
Offer Price for Segment 2
TCR Maximum
Offer Price
$ (10)
•
Intercept
(12.50)
TCR Offer Loss MW
5
Slope
0.50
Then we use these to calculate the Segment Offer Loss
for Segment 2
Segment
Offer Loss
$ (50)
Min of 0,
TCR Offer Loss MW * TCR maximum Offer Price
5 * $ (10)
28
TCR – Auction Period
•
Next, lets assume ABC Energy submits two ARR’s into
the Auction. One positive (Asset) and one negative
(Liability)
ARR Bid MW
TCR Product
Final Reference
Price
ARR
Estimated
Value
ARR
Weighting
TCR ARR
ENS
10
$ 1,386
$ 13,860
90%
$ 12,474
9
$ (375)
$ (3,375)
100%
$(3,375)
Netted position for ARR’s (If net is > $0, then $0):
$0
29
TCR – Auction Period
•
Once TCR Bid, Offer and ARR ENS is calculated, CMS
then determines the TCR Auction ENS for the Batch
TCR Auction ENS
$ (75,722)
TCR Bid ENS
$ (75,650)
TCR Batch ENS
TCR Offer ENS
$ (72)
TCR ARR ENS
$0
∑ TCR Auction ENS
30
TCR – Auction Period
•
ABC Energy has Secured Credit Limit Available (CLA) of
$100,000
Secured CLA
$ 100,000
TCR Batch ENS
$75,722
Secured CLA
$24,278
31
Section 2
TCR AWARD
32
TCR – Award Period
•
CMS received the Auction Transaction payload from
the TCR System
•
CMS then determines the TCR Start Date, End Date
and Time of Use (TOU) for each TCR in the payload
–
CMS uses these dates to calculate the following:

TCR Hours

TCR Days

Count of Calendar Days from the Start Date to the End Date
without consideration of the TOU. For example, a Spring OnPeak TCR would have a Start Date of 4/1/2015 and an End
Date of 5/31/2015. The count of calendar days is 61
33
TCR – Award Period
•
CMS will then calculate the Acquisition or Disposal
Price for each TCR
TCR Award Type = BUY
Acquisition Price
TCR Award Type = SELL
Disposal Price
34
TCR – Award Period
TCR
Acquisition
ENS
MIN
0, -1 (Sink ACP – Source ACP)
TCR
Award
MW
TCR Disposal
ENS
MIN
TCR Days
Remaining
Ratio
0, (Sink ACP – Source ACP)
TCR Sale
MW
TCR Days
Remaining Ratio
35
TCR – Award Period
•
So based on the Auction bid curve for ABC Energy, lets
assume they are awarded the following:
Bid ID
Bid
Type
ARR
Awarded
MW
TCR Product Final
Reference Price
1
Buy
No
15
$ (3,024)
2
Sell
No
8
$ (3,024)
3
Buy
Yes
10
$ 1,386
4
Buy
Yes
9
$ (375)
36
TCR – Award Period
•
Bid ID 1
Based on the Awarded numbers, CMS will now
calculate ABC Energy’s Acquisition and Disposal ENS
for each Bid ID
TCR
Acquisition
ENS
$ (150.00)
MIN
0, -1
(Sink ACP – Source ACP)
$10.00
TCR Awarded MW
TCR Days Remaining Ratio
15
1
37
TCR – Award Period
•
Bid ID 2
Based on the Awarded numbers, CMS will now
calculate ABC Energy’s Acquisition and Disposal ENS
for each Bid ID
TCR Disposal
ENS
MIN
0,
$ (96.00)
(Sink ACP – Source ACP)
$ (12.00)
TCR Sale MW
TCR Days Remaining Ratio
8
1
38
TCR – Award Period
•
Now we know the Acquisition and Disposal ENS for all
three Bid IDs
Bid ID
Bid Type
ARR
Awarded
MW
Acquisition Acquisition /
/ Disposal Disposal ENS
Price
1
Buy
No
15
$ (150)
$ (150)
2
Sell
No
8
$ (96)
$ (96)
3
Buy
Yes
10
$0
$0
4
Buy
Yes
9
$0
$0
39
TCR – Award Period
•
The next step in the Award process is CMS will
calculate the TCR Hold ENS to determine how much
collateral will be needed to “Hold” the TCR for the life
of the product
TCR Hold ENS
TCR Product Final
Reference Price
TCR
Current
MW
Months
Remaining
Ratio
40
TCR – Award Period
•
The Monthly Remaining Ratio is calculated because
TCR Hold is rolled off on a monthly basis at the
conclusion of a full month. For example, since the
product we have used in this presentation is the Spring
2015, we know that it will consist of 2 months (April
and May). Therefore our Monthly Remaining Ratio will
be 1 at the time of the Award
41
TCR – Award Period
•
Bid ID 1
Now that we understand the TCR Hold ENS calculation,
we can look at how much it will cost to Hold each of
the three TCRs in our example
TCR Hold
ENS
$ (45,360)
TCR Product Final
Reference Price
$ (3,024)
TCR Current
MW
15
Months
Remaining Ratio
1
42
TCR – Award Period
•
Bid ID 2
Now that we understand the TCR Hold ENS calculation,
we can look at how much it will cost to Hold each of
the three TCRs in our example
TCR Hold
ENS
$ 24,192
TCR Product Final
Reference Price
-1 * $ (3,024)
TCR Current
MW
8
Months
Remaining Ratio
1
43
TCR – Award Period
•
Bid ID 3
Now that we understand the TCR Hold ENS calculation,
we can look at how much it will cost to Hold each of
the three TCRs in our example
TCR Hold
ENS
$ 13,860
TCR Product
Final Reference
Price
$ 1,386
TCR Current
MW
10
Months Remaining
Ratio
1
44
TCR – Award Period
•
Bid ID 4
Now that we understand the TCR Hold ENS calculation,
we can look at how much it will cost to Hold each of
the three TCRs in our example
TCR Hold
ENS
$ (3,375)
TCR Product
Final Reference
Price
$ (375)
TCR Current
MW
9
Months Remaining
Ratio
1
45
TCR – Award Period
•
Now we know how much collateral will be needed for
ABC Energy to Hold all 4 TCRs in their Portfolio
TCR
ARR SelfAward Convert?
Type
Awarded
MW
TCR Product
TCR Hold
Final Reference ENS
Price
Buy
No
15
$ (3,024)
$ (45,360) $ (150)
Sell
No
8
$ (3,024)
$ 24,192
$ (96)
Buy
Yes
10
$ 1,386
$ 13,860
$0
Buy
Yes
9
$ (375)
$ (3,375)
$0
TOTAL
Acquisition /
Disposal ENS
$ (10,683) $(246)
46
TCR – Award Period
•
Now that we have the TCR Hold, Acquisition, and
Disposal ENS calculated, lets look at how these roll off
over the life of the product
–
Acquisition and Disposal ENS both roll off daily over the
life of the product based on the Days Remaining Ratio
–
TCR Hold ENS rolls off monthly based on the Monthly
Remaining Ratio
47
TCR – Award Period
•
The TCRs we are using in our example are all Spring
2015 TCRs therefore they are all 4/1/2015 through
5/31/2015
•
To fully understand how TCR Hold ENS Roll-off is
calculated, lets assume the maximum operating day
(OD) that has been settled is 4/4/2015
4/1/2015
5/8/2015
6/8/2015
2/2= 1
1/2= 0.5
0/2= 0
Bid ID 1
$ (45,360)
$ (22,680)
$0
Bid ID 2
$ 24,192
$ 12,096
$0
Bid ID 3
$ 13,860
$ 6,930
$0
Bid ID 4
$ (3,375)
$ (1687.50)
$0
Monthly
Remaining Ratio
48
TCR – Award Period
•
There are 61 days in the life of a Spring 2015 TCR
ACP
Day 61
Day 51
Day 41
Day 31
Day 21
Day 11
Day 0
-
61/61=
1
51/61=
0.84
41/61=
0.67
31/61=
0.51
21/61=
0.34
11/61=
0.18
0/61=
0
Bid ID 1
$ 10
$ (150)
$ (126.00)
$ (100.50)
$ (76.50)
$ (51.00)
$ (27.00)
$0
Bid ID 2
$ 12
$ (96)
$ (80.64)
$ (64.32)
$ (48.96)
$ (32.64)
$ (17.28)
$0
Bid ID 3
-
$0
$0
$0
$0
$0
$0
$0
Bid ID 4
-
$0
$0
$0
$0
$0
$0
$0
Daily
Remaining
Ratio
49
TCR – Secondary Market
•
Calculations used for Secondary Market Transaction
–
TCR Award ENS for both the Buyer and the Seller
–
TCR Hold ENS for the AO’s proposed Secondary Market
transfer for both the Buyer and the Seller

We use the Transferred MW value rather than the Awarded
MW
50
Questions?
Jared Barker
[email protected]
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